Banks scramble to get rid of €100bn in junk loans
European banks either sold or begun working on deals to dump more than €100bn of bad loans in the first half of the year.
Research from Deloitte found EU lenders sold a total of €44bn in non-performing loans in the six months to end of June, with another €68bn of offloads in the pipeline. The total of €112bn is higher than the amount of sales completed in the whole of 2015, in a sign banks are stepping up efforts to bolster their balance sheets.
Italian lenders led the sales league table, with €11.4bn worth of non-performing loans and other so-called non-core assets, defined as loans the bank does not believe are worth keeping, dumped.
The country’s embattled banks are also in advanced negotiations to sell off another €40bn worth of bad debt.
Across Europe, Deloitte estimated banks have around €2 trillion of bad debt, with Italian lenders buckling under €360bn.
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David Edmonds, a partner in Deloitte’s restructuring team said he expected the pace of sales to hold up, as banks battle to turn a profit in the era of super-low interest rates. “Non-performing loans remain a significant drag on a bank’s overall performance, both financially and operationally,” he said.
“Most European institutions are focused on exiting their non-performing loan stocks on an accelerated basis.”
The International Monetary Fund (IMF), the European Central Bank’s (ECB) chief economist and a host of other analysts have all warned the current business model for many European lenders is unsustainable in an era characterised by weaker growth, lower interest rates and a squeeze on profits.
After selling €40bn of bad debt in 2015, UK banks have completed only three deals totalling €1bn so far in 2016, and there are no unfinished sales currently being negotiated.